by Calculated Risk on 3/10/2008 02:01:00 PM

Last week, MBIA asked Fitch to withdraw ratings on several of its units.

Today Fitch responded (via MarketWatch): Fitch calls MBIA info destruction request 'disingenuous' (hat tip Charlie)

[Stephen Joynt, the chief executive of Fitch Ratings] told MBIA it was "considering" MBIA's request to withdraw IFS ratings, and that it was willing to waive rating fees.

Joynt also asked MBIA if they were asking S&P and Moody's to waive their fees.

For those with access, here is the Fitch response.

by Calculated Risk on 3/10/2008 12:31:00 PM

From CNNMoney: Moody's downgrades Alt-A deals

Moody's downgraded the ratings of 163 tranches from 15 deals issued by Bear Stearns ALT-A Trust, with 78 downgraded tranches remaining on review for possible further downgrades.

Moody's said the downgrades are based on 'higher-than-anticipated rates of delinquency, foreclosure and REO in the underlying collateral relative to credit enhancement levels.'

Also, former Bear Stearns CEO "Ace" Greenberg responded on CNBC to a rumor that Bear faced a liquidity crisis:

"It's ridiculous, totally ridiculous."

by Anonymous on 3/10/2008 11:20:00 AM

From Marketwatch:

Getting the FBI to do your due diligence doesn't seem like a particularly great business strategy.

by Anonymous on 3/10/2008 11:00:00 AM

by Calculated Risk on 3/10/2008 10:19:00 AM

From Bloomberg: Emerging-Market Bonds Rise on Speculation of Emergency Rate Cut

Emerging-market bonds rose following a Goldman Sachs Group Inc. research note suggesting that the Federal Reserve will cut rates before its scheduled meeting to shore up the U.S. economy.
...
Goldman joined several other analysts who say the Fed may lower interest rates today in ``a more aggressive response'' after the government said on March 7 that employers unexpectedly cut jobs in February for a second month.

by Calculated Risk on 3/10/2008 10:12:00 AM

From Paul Krugman at the NY Times: The Face-Slap Theory

This column is a followup to Krugman's blog posts: What’s Ben doing? (Very wonkish) and Why sterilization matters

Note: It was reader BR who sent me the joke mentioned in the column. I like Tanta's version too: "Mr. Margin on line one"

by Calculated Risk on 3/09/2008 07:42:00 PM

From the WSJ: Fear Cycle Ensnares Structured Products

... investors ... are driving risk premiums on a closely watched derivative index -- the investment-grade Market CDX IG9 index -- to record weak levels ...

That, in turn, is creating a vicious cycle: the wider the risk premiums go on this index, the more of these complex structured products -- which are at the heart of the ongoing credit crunch -- get dragged into the maelstrom.

Click on graph for larger image.

Here is the CDX IG9 graph from Market.

The IG9 index reflects the cost of insuring against default by 125 U.S. and Canadian investment-grade companies. It widens when investors buy protection in anticipation of further troubles in corporate credit. Structured products also used the index, primarily selling protection, as part of elaborate money-making strategies.

Just more cliff diving in the credit markets.

by Calculated Risk on 3/09/2008 02:04:00 PM

This is a hot topic right now.

From Professor DeLong on Bloomberg TV: Are We in a Recession?

Lindsey:... Are we in a recession?

DeLong: Probably. If we are not in a recession we are teetering on the edge. The [q]uestion is: will there be a big recession or a small recession, or only a near-recession that feels like a recession to an awful lot of people. Those thousands of jobs that were not there that we thought would be.
...
Lindsey: At the conference [SIEPR 2008 Economic Summit], what is the mood? what are you in your colleagues talking about?

DeLong: That we might as well be in a recession and we should treat it as long as far as economic policy is concerned. hank paulson will be here this evening reassuring everybody, larry summers was here this morning scaring everyone.

From Professon Hamilton at Econbrowser: Has the recession started?

It will still be many months before we would expect to see an "official" declaration that a recession has indeed begun from the Business Cycle Dating Committee of the National Bureau of Economic Research. Granted, the latest data look recessionary. But the Committee would be pondering the following: suppose these data are revised up or next month's numbers start to improve. Would what has happened so far be enough to characterize as a recession? The answer is pretty clearly no, and that is why no declaration from NBER will be forthcoming any time soon.
...
In the mean time, though, if you want to claim that the recession has begun, that now strikes me as quite a reasonable working hypothesis.

And from The Times: Britain shivers as US hits recession

AMERICA’s economy is definitely in recession, economists say, amid growing fears that the credit crunch is entering its most dangerous phase.

I think the economy is in recession, but Jim Hamilton is correct - we need several more months of negative numbers (that don't get revised away) to make it official. And DeLong is correct: the more important question is how severe the downturn will be.

by Calculated Risk on 3/08/2008 06:38:00 PM

Professor Krugman writes: What’s Ben doing? (Very wonkish)

The financial crisis seems to have entered its third wave. Panic in August, then partial recovery thanks to lots of money thrown at the system by the Fed. Renewed panic late fall, then partial recovery thanks to even more money thrown in, especially the Temporary Auction Facility. And panic has set in yet again:

The second graph is the A2P2 spread from the Fed's Commercial Paper report. This also shows the 3rd wave of the financial crisis.

I recommend Krugman's piece for those that want to understand what the Fed is doing (and why it is sterilized). Also see Professor Hamilton's piece from December: Monetary policy using the asset side of the Fed's balance sheet

Several people have sent me this piece from interfluidity: Repurchase agreements and covert nationalization. Steve Randy Waldman does a good job of describing the situation, but I think he takes it too far. As Waldman notes, the Fed offers loans only against certain collateral, and requires that loans be overcollateralized. I've seen the lendable amount sheet, and I think the Fed is pretty well protected - so I think the author takes it one step too far to call this "covert nationalization".

by Calculated Risk on 3/08/2008 05:54:00 PM

From Reuters: Banks face "systemic margin call," $325 billion hit: JPM (hat tip Anthony, RW)

The JPMorgan report included a revised bleaker forecast for subprime-related home prices. The bank now sees prices falling 30 percent, from its prior 25 percent forecast. Those prices have declined 14 percent since mid-2006, JPMorgan said.

Is JPMorgan just talking about price declines for houses purchased with subprime loans? Or is the Reuters story adding "subprime" to the story line?

Note: Case-Shiller shows national prices have declined 10.1% through Q4 2007, so my guess is the JPMorgan estimate is for all houses and includes the decline through the beginning of March 2008.